State of the Union 2013: Economists' Surprises, Disappointments

President Obama in his State of the Union address on Tuesday night spoke confidently about what he expects to accomplish his second term, but how he described job creation and a showdown with Congress over automatic sequester cuts in the budget took some economists by surprise.

"The most politically significant part of the address concerned the upcoming showdowns on the fiscal cliff, continued funding of the government and debt ceiling," said Robert Reich, former Secretary of Labor during the Clinton administration and Chancellor's Professor of Public Policy at the University of California at Berkeley. "On these, it wasn't so much what the president said -- his calls for cooperation were non-partisan -- but his implicit threat that if Republicans play games of brinksmanship on any of these, he will call them on it, and has the power to get the public behind him."

Reich said the president discussed "worthwhile initiatives" such as raising the minimum wage to $9 an hour and indexing it to inflation and providing every child in American with early-childhood education. Though Reich said none will be enacted amid opposition from Republicans in Congress.

Isabel Sawhill, co-director of the Brookings Institution's Center on Children and Families, agreed that "raising the minimum wage, providing a high-quality preschool experience to every child, enabling more families to refinance their mortgages, providing assistance to struggling communities, or creating new jobs are all worthy ideas."

"But it's not clear how to pay for them or enact them in the current environment," she said.

Sawhill said the president made a "strong pitch" for replacing the arbitrary cuts called for by the sequester with a balanced package including new revenues from tax reform and some modest cuts to Medicare, for example, by means-testing benefits.

"I was more surprised by the promise to bring the troops home from Afghanistan sooner than expected and to appoint a commission on voting rights," Sawhill said.

Sen. Marco Rubio, R-Fla., who gave the official Republican State of the Union response after the address, said that government "isn't going to create more opportunities," arguing against more taxes and more government spending.

"My biggest disappointment was the president's view that he and the Congress have essentially solved our fiscal challenges when nothing could be further from the truth," said Alison Fraser, the conservative Heritage Foundation's director of economic policy studies.

Fraser referred to last week's Congressional Budget Office report which said the federal government will run deficits no less than $500 billion, and increase to $1 trillion deficits in less than a decade.

"He seemed to want to push off the looming sequester cuts, yet without cuts this level of spending will push debt to economically damaging levels," Fraser said. "On the most crushing deadline facing Congress, he proposed no serious solutions to replace the sequester cuts which will result in a hollowed out military."

"Listening closely, there were contradictions as he mentioned things like rolling back some benefits on wealthier seniors, the very same folks he wants to raise taxes on," Fraser said. "This is why people are so distrustful of Washington - income adjusting benefits so Social Security and Medicare are targeted to those who need them the most makes sense, but then turning around and raising taxes on those same people does not."

Fraser questioned the president's assertion that spending initiatives for infrastructure projects and education would not add to the deficit.

"Just how can these major new spending initiatives not add more to the deficit unless he plans huge new tax increases to go along with them?" she said. "Taxpayers have been told again and again that we need a balanced approach to deficit reduction, yet following a huge tax increase on the wealthy and the payroll tax hike for all workers, the president proposes more spending. Does anybody seriously believe that more tax increases from Washington then would go to deficit reduction?"